Photo: iStock
Photo: iStock

Quick returns, bad insurance covers and other bloopers

We talk to Rohit Shah of Getting You Rich to know some of the biggest mistakes investors make

In April-May 2017, Mint surveyed 19 financial advisers, to know some of the biggest mistakes investors make. Over the next few weeks, we will talk to more advisers about these mistakes (read more here: www.livemint.com/investor-mistakes). This week, we talk to Rohit Shah, a Sebi-registered investment adviser, and founder and chief executive officer of Getting You Rich, a financial planning firm.

While it’s not a crime to have expectations, it is a problem when we expect too much. For instance, Shah says that many of his clients want high returns from their investments but don’t want to wait: “If a mutual fund scheme has not been doing well for 2 years, they want to stop the SIP (systematic investment plan)."

This may result in, what Shah calls, “poor averaging". Premature stopping and withdrawing your money from an SIP can make your returns look poor. In November, Mint published a Mint-Crisil Research SIP study that showed how the chances of making a loss in an SIP—and also the volatility—goes down as the tenure goes up (read here).

On the other hand, investors tend to hold loss-making investments for too long. “It’s not just the common man. Even the well-read commit this mistake. We explain to them that moving this capital to a better-performing investment can possibly recover the loss faster and the investor could end up with a better pay-off. While all clients agree with this, many find it difficult to book the loss, said Shah.

This is again a very common mistake. Shah said that many first-time clients have portfolios that are all over the place. They would have some investments in their demat account, some with their bank and some that they may have made through a distributor.

“Their defence is, ‘we had no time to monitor so we incrementally invested," said Shah. The first few months get spent in consolidating their portfolios.

This also un-complicates several things as we can clearly know how much the investor has and know where to begin, Shah added.

Shah says many new clients come with direct equity in their portfolios. “It appeals to everyone, just like gold. And it also appeals to conservative investors," he added. Investing in equity shares directly is not bad at all, but Shah believes that investors must have knowledge of why they are investing in any instrument. For instance, if an investor buys shares of a company, it works if she understands some essential about that company’s business environment, its ability to generate sales and profits, and the competitive environment that the company works in.

Presence of too many insurance policies—most without a purpose—is a common sight in many investors’ portfolios. But Shah said that many times he comes across investors who have stopped paying premiums mid-way because they either don’t have enough cash or they realise that the charges are very high. And because the surrender costs are high, said Shah, investors don’t even surrender them.

“Partly paid-up policies are rarely a good idea," he added. Shah said one of the first tasks he undertakes with a fresh client investor is to assess the investor’s insurance needs (both life and health insurance) and re-configure the insurance corpus.

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